Exempting Retirement and Social Security Income

Rhode Island needs to cut all sorts of taxes on everybody. However, it’s important for policy makers and the general public to ask questions about particular proposals. What’s the goal of a particular cut; who benefits; where’s the money going to come from?

Conservatives have periodically asked me about the proposal that House Speaker Nicholas Mattiello (D, Cranston) and Senate President Teresa Paiva Weed (D, Newport) are publicly considering — to exempt retirement and Social Security income from taxes. Although it may be popular to promise senior citizens things, the questions still apply. Regarding the goal of the policy, Providence Journal reporters Katherine Gregg and Linda Borg offer this summary:

Neither idea is new. But this year, the Democratic leaders of the House and Senate are both talking about how they can keep retirees — and their retirement income — in Rhode Island.

Given limit political ability to cut taxes, does this reform target the group (1) that’s most notably leaving Rhode Island and (2) that Rhode Island needs most to stay? I wouldn’t say so. The state has long shed many young, single, college educated residents. The largest losses by family type have been married families with children. Once again, our biggest and most important losses are from the “productive class” — people who are interested in using the local economy to change their time and talents into money. That’s what really grows an economy.

It helps that cause a little to let relatively idle people keep and spend more of their cash, particularly if it keeps them in the state, but it’s indirect and subject to bleeding. A retiree’s tax-cut-funded vacation in another state helps young working families in Rhode Island not at all. A retired couple that keeps its Rhode Island house, instead of moving, keeps a younger family from buying that house.

On the question of how the General Assembly would make up for the reduced revenue, it’s encouraging to see Mattiello talking about cuts in spending, but we should believe that when we see it. The state legislature has a habit of finding ways of shifting burdens around, rather than actually limiting the size of government.